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How Real Estate can help you generate passive income

Updated: Mar 14

The current economic environment which is inflationary and recessionary has made it necessary for people to have more than one source of income and what could be a better way to do that than make that money passively. Herein we’ll discuss how real estate can help you create a passive income and a lucrative one at that.

Passive income from real estate is one of the most efficient ways to create an additional revenue source, have security for retirement and achieve financial freedom as it allows the investors to generate revenue without much active involvement.

Why passive income is important?

With an active source of income, you are time-bound and place-bound. There are only so many hours that you can work and only so much money that you can make. With passive income, although the actual level of involvement might vary, the investments once established generate revenue on their own. Passive income not only provides additional wealth with little effort, but also makes you financially stable enough to consider early retirement and increase your net worth while reducing the stress and anxiety about the future.

How to utilize real estate as a source of passive income?

There are numerous ways to invest passively in real estate, some of which are discussed below-

1. Rental Properties-

· Single-family home- It is a standalone rental property like a condo that is rented out to a single tenant or family. They provide not only long-term asset growth but also additional monthly revenue in the form of rental income.

· Multifamily – The benefit of using multifamily property as a medium of passive income is that income is generated from multiple tenants by managing only one property. It generates more revenue than a single-family property. However, investors usually invest in multifamily properties via syndication because it is a capital-intensive investment option.

· Storage Facilities- Storage facilities are in great demand nearly everywhere. Since they usually have multiple units and low overhead costs, storage facilities are an extremely good option for passive income generation.

2. Vacation Homes- A vacation property can be a very lucrative option to generate passive income using real estate. You can list your property with service providers like Airbnb and VRBO and enjoy the rent generated by bookings made by tourists. However, the investor must take the tourist trends and seasonal vacancies into consideration while analyzing the opportunities.

3. REITs- REITs are an extremely passive investment option. By investing in REITs, the investor is basically purchasing the shares of the property owned or held by the REIT company. The investor expects to benefit from the growth of the assets, which can eventually be sold for a higher price. The investor may also receive dividends from REITs, which makes for a passive income stream.

4. P2P lending- If an investor doesn’t necessarily want to step into the game, he can still utilize real estate as a way of generating passive income by lending out to other investors who are more hands-on with their investments. He can then earn a passive return in the form of interest on the loan and that too in a relatively short period of time.

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